Fiduciary relationships outside trust

Fiduciary relationships constitute one of equity's most important contributions to private law. Though fiduciary duties are commonly associated with trustees, the category extends well beyond the express trust. Company directors, solicitors, agents, partners, and certain other relationships attract fiduciary obligations even in the absence of any trust instrument.

This note examines fiduciary relationships outside the express trust context. It considers the principles determining when a relationship will be classified as fiduciary, the content of fiduciary duties (particularly the no-conflict and no-profit rules), and the remedies available for breach.

The topic builds upon your study of trustees' duties (Week 10) and equitable compensation (Week 13). It also intersects with the law of companies, agency, and partnership. A sound understanding of fiduciary principles is essential for the FHS as questions regularly require candidates to identify and apply fiduciary obligations across diverse commercial and advisory relationships.

Three themes dominate contemporary debate: (i) the scope question—when does a relationship become fiduciary?; (ii) the content question—are fiduciary duties invariable or context-specific?; and (iii) the remedies question—what relief follows breach, especially where profits have been made?

The concept of the fiduciary emerged gradually. Medieval equity originally treated fiduciaries as those who held property on behalf of another—the trustee paradigm. Over the eighteenth and nineteenth centuries, equity extended analogous duties to other relationships involving confidence, reliance, or vulnerability.

By the mid-nineteenth century, courts recognised that company directors owed fiduciary duties despite not being trustees in the strict sense (Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461). Solicitors, agents, and partners likewise attracted fiduciary characterisation. The House of Lords in Bray v Ford [1896] AC 44 articulated the inflexible rule that a fiduciary may not profit from his position or place himself in a position where duty and interest conflict.

Throughout the twentieth century, courts struggled with the boundaries of fiduciary status. Reading v Attorney-General [1951] AC 507 held that a soldier who accepted bribes to facilitate smuggling was a fiduciary vis-à-vis the Crown, though the decision has been doubted. Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 in the High Court of Australia witnessed sharp disagreement about whether distributorship agreements create fiduciary relations.

Recent decades have seen sustained academic and judicial scrutiny of fiduciary principles. Influential contributions include Paul Finn's monograph Fiduciary Obligations (1977) and the Privy Council's decision in Attorney-General of Hong Kong v Reid [1994] 1 AC 324 (since overruled in England by FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45). The Supreme Court in FHR and Akers v Samba Financial Group [2017] UKSC 6 has sought to clarify remedies, though many questions remain.

The history reveals tension between two conceptions of fiduciary law: a narrow view confining it to relationships of trust-like character, and a broader view encompassing any relationship of dependence or vulnerability.

The definitional challenge

The courts have resisted formulating an exhaustive definition of 'fiduciary'. As Millett LJ observed in Bristol and West Building Society v Mothew [1998] Ch 1, 18:

A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.

The question is whether the defendant has undertaken to act in another's interest. Mere vulnerability or inequality of bargaining power does not suffice; nor does the existence of a contractual relationship alone (Hospital Products; Edelman v TAP Oil Ltd (1989) 55 SASR 107).

Established categories

Certain relationships are fiduciary per se. These include:

1. Foundation: Explain the distinction between the 'no-conflict' and 'no-profit' rules. Why does equity impose strict liability for breach of these duties?

1. Foundation: Alice is a trustee of a family trust holding shares in XYZ Ltd. The trust lacks funds to take up a rights issue. Alice personally subscribes for the rights shares, which later treble in value. Advise the beneficiaries. Would your answer differ if Alice had sought the beneficiaries' consent but they refused to give it?

1. Standard: 'The distinction between fiduciary and non-fiduciary duties, though clear in principle, is often elusive in application.' Discuss with reference to at least three different types of relationship.

1. Standard: Bruno, a solicitor, acts for Clara in the acquisition of a business. Without disclosing this to Clara, Bruno receives a £50,000 commission from the vendor. Bruno becomes insolvent. Advise Clara as to her rights and remedies, referring to relevant recent case law.

1. Challenge: 'Following FHR European Ventures, English law grants proprietary remedies for breach of fiduciary duty too readily, undermining the principles of insolvency distribution and creating incoherence in the law of unjust enrichment.' Critically evaluate this claim.

Essential articles and chapters

• Conaglen, M., Fiduciary Loyalty: Protecting the Due Performance of Non-Fiduciary Duties (Hart, 2010) — the leading monograph.
• Finn, P.D., Fiduciary Obligations (Law Book Co, 1977) — foundational, though dated; influential in Australia.
• Smith, L., 'Fiduciary Relationships: Ensuring the Loyal Exercise of Judgement on Behalf of Another' (2014) 130 Law Quarterly Review 608 — clear, conceptual analysis.
• Worthington, S., 'Fiduciaries: When is Self-Denial Obligatory?' (1999) 58 Cambridge Law Journal 500 — accessible overview of scope and content.
• Edelman, J., 'When Do Fiduciary Duties Arise?' (2010) 126 Law Quarterly Review 302 — on identifying fiduciary relationships.
• Birks, P., 'The Content of Fiduciary Obligation' (2000) 34 Israel Law Review 3 (reprinted (2002) 16 Trust Law International 34) — critique of fiduciary orthodoxy.

Case notes and commentaries

• Mitchell, C. and Watterson, S., 'Remedies for Knowing Receipt' in C Mitchell (ed), Constructive and Resulting Trusts (Hart, 2010) ch 5 — on the intersection with dishonest assistance and remedies.
• Virgo, G., 'Profits Obtained in Breach of Fiduciary Duty: Personal or Proprietary Claim?' [2011] Cambridge Law Journal 502 — critique of Sinclair Investments and discussion of FHR.
• Conaglen, M., 'The Nature and Function of Fiduciary Loyalty' (2005) 121 Law Quarterly Review 452 — theoretical foundation for Conaglen's later monograph.

Treatises and practitioners' works

• Lewin on Trusts, 20th edn (Sweet & Maxwell, 2020), chs 20–21 — comprehensive treatment of trustees' duties and fiduciary obligations.
• Snell's Equity, 34th edn (Sweet & Maxwell, 2020), ch 7 — detailed doctrinal exposition.

These readings will deepen your understanding and are invaluable for tutorial preparation and exam revision.